ACIT, Nainital V. M/s The Nainital Bank Ltd., Nainital

ITA 3606/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58468 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 11-01-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 21-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MONGA
• Assessee Lawyers: K R RASTOGI
• Keywords: Business expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `H: NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI K.G. BANSAL, ACCOUNTANT MEMBER I.T. A. NO.3606/DEL/2011 ASSESSMENT YEAR: 2008-09 ASSTT. COMMISSIONER OF INCOME-TAX, M/S. THE NAINIT AL BANK LTD., NAINITAL. VS. NAINITAL. PAN: AAACT5714D (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.K. MONGA, SR. DR. RESPONDENT BY : SHRI K.R. RASTOGI , CA. O R D E R PER K.G. BANSAL, ACCOUNTANT MEMBER: THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPA NY FILED ITS RETURN ON 23.09.2008 DECLARING TOTAL INCOME OF RS.52,40,33 ,895/-. THE RETURN WAS PROCESSED UNDER SEC. 143(1) OF THE ACT. THEREAFTER , ASSESSMENT PROCEEDINGS WERE INITIATED BY SERVING A NOTICE UNDER SEC. 143(2 ) DATED 19.08.2009 ON THE ASSESSEE. 1.1 IT WAS FOUND THAT THE ASSESSEE IS A BANKING COM PANY AND IT IS REGISTERED UNDER THE COMPANIES ACT, 1956. IT IS EN GAGED IN THE BUSINESS OF 2 BANKING. COMING TO THE SPECIFIC, IT WAS FOUND THAT THE ASSESSEE HAD PAID A SUM OF RS.30 LAKH TO THE LIC AS PREMIUM. IT WAS DI RECTED TO SHOW CAUSE AS TO WHY THIS AMOUNT SHOULD NOT BE DISALLOWED IN VIEW OF THE PROVISION CONTAINED IN SEC. 43B(F). IT WAS SUBMITTED THAT TH E ISSUE STANDS COVERED BY THE DECISION OF THE TRIBUNAL IN ITS OWN CASE FOR AS SESSMENT YEAR 2006-07. HOWEVER, THE ASSESSING OFFICER DISALLOWED THE EXPEN DITURE BY MENTIONING THAT AN APPEAL HAS BEEN FILED BEFORE THE HONBLE DE LHI HIGH COURT AGAINST THE AFORESAID ORDER. 1.2 THE MATTER WAS AGITATED BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, DEHRADUN. HE DELETED THE DISALLOWANC E BY FOLLOWING THE ORDER OF THE TRIBUNAL. 1.3 AGGRIEVED BY THIS ORDER, THE REVENUE IS IN APPE AL BEFORE US. THE ONLY GROUND TAKEN IS THAT ON THE FACTS AND IN THE CIRCUM STANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT PAYME NT IN RESPECT OF LEAVE ENCASHMENT BENEFIT WAS NOT DUE TO ELIGIBLE EMPLOYEE S DURING THE YEAR UNDER CONSIDERATION. HENCE, THE LIABILITY TO PAY HAS NOT BEEN INCURRED, WHICH IS THE ESSENTIAL CONDITION FOR ALLOWABILITY OF THE EXPENDI TURE UNDER MERCANTILE SYSTEM OF ACCOUNTING. 2. BEFORE US, THE LEARNED SENIOR DEPARTMENTAL REPRE SENTATIVE RELIED ON THE ASSESSMENT ORDER. IT HAS ALREADY BEEN MENTIONE D BY US THAT HE MADE THE 3 DISALLOWANCE AS THE REVENUE HAS NOT ACCEPTED THE DE CISION OF ITAT IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2006-0 7. 2.1 IN REPLY, THE LEARNED COUNSEL REFERRED TO THE S TATEMENT OF FACTS. IT IS MENTIONED THEREIN THAT A SUM OF RS.30 LAKH HAS BEEN DISALLOWED, WHICH REPRESENTS PAYMENT MADE TO THE LIC ON ACCOUNT OF LE AVE ENCASHMENT. THIS ISSUE STANDS COVERED BY THE DECISION OF THE TRIBUNA L IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2006-07. FURTHER, IT HAS BEEN SUBMITTED THAT THE ISSUE AROSE FOR THE FIRST TIME IN THE PROCEEDIN GS OF ASSESSMENT YEAR 2004-05. IN THAT YEAR, THE MATTER WAS DECIDED IN F AVOUR OF THE ASSESSEE BY `F BENCH OF THE TRIBUNAL IN ITA NO.4987(DEL)/2007 DATED 09.01.2009. THEREAFTER, THIS DECISION HAS BEEN FOLLOWED BY THE TRIBUNAL IN SUBSEQUENT YEARS 2005-06 AND 2006-07. IN VIEW OF THESE DECISI ONS, IT IS URGED THAT THE MATTER MAY BE DECIDED IN FAVOUR OF THE ASSESSEE. 3. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUB MISSIONS MADE BEFORE US. THE ADMITTED POSITION IS THAT THE ISSUE STANDS COVERED BY THREE DECISIONS OF THE TRIBUNAL FOR ASSESSMENT YEARS 2004 -05 TO 2006-07. THE MATTER HAS BEEN DISCUSSED AT LENGTH IN THE ORDER FO R ASSESSMENT YEAR 2004- 05. FOR THE SAKE OF READY REFERENCE, PARAGRAPH 13 OF THIS ORDER IS REPRODUCED BELOW:- 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS PER THE MASTER POLICY TAKEN BY THE ASSESSEE BANK, IN RESPEC T OF THE 4 LIABILITY AS AN EMPLOYER, LIC HAS UNDERTAKEN TO PAY THE BENEFITS IN RESPECT OF ALL THE EMPLOYEES (MEMBERS OF THE SCH EME) THE LEAVE ENCASHMENT BENEFITS. THE ASSESSEE IS TO INTI MATE LIC ABOUT THE HAPPENING OF THE EVENT WHICH ENTITLES THE EMPLOYEE TO LEAVE ENCASHMENT BENEFIT. ON SUCH INTIMATION LIC S HALL DISCHARGE THE LIABILITY THROUGH THE ASSESSEE. THER EFORE, THE LIABILITY TO PAY ENCASHMENT BENEFIT NOW RESTS WITH THE LIC AND NOT WITH THE ASSESSEE. THE ASSESSEE HAS TO MERELY PAY ANNUAL PREMIUM AS PER THE TERMS OF AGREEMENT. THE INITIAL PREMIUM FOR ONE YEAR WAS WORKED OUT AT RS.1,10,00,000/- WHI CH WAS PAID BY THE ASSESSEE ON TAKING THE POLICY ITSELF IN MARCH 2003. THE COMMISSIONER (APPEALS) MISTOOK THE NATURE OF PA YMENT BY THE ASSESSEE. THOUGH THE PRIMARY RESPONSIBILITY TO PAY LEAVE ENCASHMENT BENEFIT IS OF THE ASSESSEE, THE ASSESSEE TO SAFEGUARD ITS INTEREST TOOK AN INSURANCE POLICY FROM LIC SO T HAT HENCEFORTH THE LIC WILL DISCHARGE LEAVE ENCASHMENT LIABILITY SUBJECT TO ASSESSEE PAYING THE PREMIUM. THEREFORE, THE LIABILITY OF THE ASSESSEE IS ONLY TO PAY THE PREMIUM AND ACTU AL SUM PAYABLE TO EACH EMPLOYEE TOWARDS LEAVE ENCASHMENT I S THAT OF LIC. IN SUCH CIRCUMSTANCES, THE ASSESSEE HAVING PA ID THE PREMIUM HAS DISCHARGED ITS LIABILITY TOWARDS LEAVE ENCASHMENT SCHEME. THE SAME IS THEREFORE, ALLOWABLE AS EXPEND ITURE UNDER SECTION 37 OF THE ACT. IN THE CASE OF TEXTOOL CO. LTD. (SUPRA), THE FACTS ARE THAT THE EMPLOYEES GROUP GRATUITY FUN D OF THE ASSESSEE COMPANY WAS DULY APPROVED GRATUITY FUND CR EATED FOR THE EXCLUSIVE BENEFIT OF THE EMPLOYEES OF THE SAID COMPANY AND IT WAS ALSO AN IRREVOCABLE TRUST. ALTHOUGH THE PAY MENTS WERE MADE BY THE ASSESSEE COMPANY DIRECTLY TO THE LIFE I NSURANCE CORPORATION THE COMMISSIONER (APPEALS) AND THE TRIB UNAL RECORDED A FINDING OF FACT THAT THE PAYMENTS WERE D EDUCTIBLE. ON REFERENCE THE HONBLE MADRAS HIGH COURT HELD MERELY BECAUSE THE PAYMENTS WERE MADE DIRECTLY TO THE L.I.C., THE COMPANY COULD NOT BE DENIED THE BENEFIT UNDER SECTION 36(1)(V) OF THE INCOME TAX ACT, 1961. THE TRIBUNAL WAS RIGHT IN ALLOWING THE DEDUCTION OF RS.5584754-00 BEING THE PAYMENT MADE BY THE ASSESSEE COMPANY DIRECTLY TO L.I.C. TOWARDS GROUP GRATUITY FUND UNDER SECTION 36(1)(V) OF I.T. ACT. 5 IN THE CASE OF ASSOCIATED ELECTRICAL INDUSTRIES (IN DIA) PVT. LTD. (SUPRA), THE HEAD NOTE READS AS UNDER:- BUSINESS EXPENDITURE YEAR IN WHICH ALLOWABLE PLAN FOR PENSION AND INSURANCE FOR EMPLOYEES POLICIES TAKEN IN NAMES OF EMPLOYEES PURSUANT TO PLAN ASSESSEES CONTRIBUTIONS TO PREMIUM DISALLOWED IN YEARS OF PAYMENT ON GROUND THAT ASSESSEE HAD CONTROL OVER DISPOSAL OF FUNDS AMENDMENT OF RULES OF PLAN LEAVING NO CONTROL WITH ASSESSEE AND MAKING AMOUNTS DUE UNDER POLICIES PAYABLE TO EMPLOYEES AMOUNTS EARLIER DISALLOWED ALLOWABLE IN YEAR IN WHICH AMENDMENT WAS EFFECTED AS OUTGOING OF THAT YEAR INDIAN INCOME TAX ACT 1922, S.10(2)(XV), (4)(C ). BOTH THE CASES CAN BE APPLIED TO HOLD THAT THE LIAB ILITY WHICH WAS SOUGHT TO BE DISCHARGED BY TAKING INSURANCE POL ICY AND THE PREMIUM HAVING BEEN PAID IN THIS REGARD, THE PREMIU M PAYABLE/PAID IS ELIGIBLE FOR DEDUCTION WHILE COMPUT ING THE INCOME FROM BUSINESS. WE, THEREFORE, DELETE THE DI SALLOWANCE OF RS.1,10,00,000/-. 3.1 FOLLOWING THE AFORESAID DECISION, IT IS HELD TH AT THE ASSESSEE WAS ENTITLED TO DEDUCT THE AMOUNT OF RS.30 LAKH IN COMP UTING ITS TOTAL INCOME. 4. IN THE RESULT, THE APPEAL IS DISMISSED. 5. PRONOUNCED IN THE OPEN COURT ON 11 TH JANUARY, 2012. SD/- SD/- (A.D. JAIN) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 11 TH JANUARY, 2012. 6 ITA NO.3606/DEL/2011 COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR, ITAT.